Variable Rate Plans for Electricity and Natural Gas
Should you pick a variable rate plan? Only with your local utility. Variable rates with alternate retail suppliers can present some risk.
Summary: Our Recommendations
We only recommend variable rates with your local utility, and for the following periods:
- Natural gas: 6 months during the winter months OR more than 1 year
- Electricity: 6 months or less
Variable rate plans with an alternate supplier are not recommended.
What is a variable rate?
Variable rates are rates which change each month. They are the opposite of fixed rates, which remain constant over the whole duration of your contract. Variable rates vary mainly according to the value of the market. They therefore tend to be more expensive when demand is high, and less expensive when demand is low.
As you can see on the graph above, the main part of the variations is seasonal. Furthermore, the variations in price are greater for natural gas than for electricity.
If you choose a variable rate, the price of the kWh (for electricity) or of the Therm (for natural gas) will look like the table above.
On the other hand, there is another type of variation which is the long term price increase or decrease. In the following graph we show the yearly average electricity price. This will cancel the monthly variations, and show the average trend over the years:
As we can see, electricity prices have increased in the past 10 years. On the other hand, prices of natural gas have irregularly progressed during the last 10 years.
Variable Rates: What should I choose?
- 6 months or less, during winter. As we resumed above, natural gas rates are cheaper for period of 6 months during the winter months. This is because rates will be cheaper in winter, and a variable rate will enable you to benefit from this variation.
- 1 year or more. Over longer periods of time, natural gas prices have been decreasing on average in the last 5 years. Therefore, you may benefit from a variable rate also over several years. Nevertheless, it is impossible to guarantee that natural gas prices will carry on decreasing in the next few years. So you must be careful with such long-term previsions.
- 6 months or less, during winter. Electricity prices present fluctuations similar to natural gas on a seasonal basis, although less extreme, therefore it also interesting to take a variable rate for a short period of time during winter.
- For longer periods of time, we do not recommend any variable rate, as you will end up paying increasing electricity prices on the long term. Fixed rates are the best option, as they flatten your electricity bill and avoid the long term increase (as well as the short term fluctuations).
To find out more about which to choose between fixed or variable rates, visit our Fixed VS Variable Rates page.